Fund-Level Cross-Collateralization

A structural feature of a litigation finance fund or facility in which proceeds from successful cases within the fund are available to support obligations or losses associated with other cases in the same fund, rather than each case's proceeds being isolated and applied only to that specific investment's own return. Cross-collateralization is what makes portfolio-level diversification actually functional at the cash-flow level, since without it a fund could report an attractive blended return on paper while individual investors in a single underperforming case tranche experience an actual loss. The scope of cross-collateralization — whether it operates across the entire fund, only within a defined sub-pool, or not at all in a single-case side-car vehicle — is a fundamental structuring decision that directly shapes how portfolio diversification translates into investor-level outcomes.

Whether a facility is genuinely cross-collateralized or only nominally diversified changes the practical risk profile for every investor in it, since a portfolio described as diversified but structured with case-by-case proceeds isolation does not actually deliver the loss-smoothing benefit investors typically associate with portfolio litigation finance. Investors evaluating a proposed fund or facility examine the actual cash-flow mechanics, not just the marketing description of diversification, since the difference between true cross-collateralization and case-level proceeds isolation can be the difference between an attractive blended return and a series of independent binary bets.